SEC approves 200+ million Americans as Angel Investors
lawgives.net
lawgives.net
If you are a passive investor what you would do is invest in all the crowdfunded investments available or a large number at least and then hope to beat the S&P 500. It might make sense to apply some basic fitness criteria for inclusion, but what those criteria should be is a good question.
Having more things to invest in is good, but I am going to hold off for five years or so until the mechanics for how to successfully participate have been figured out. Then I have to figure out how I am going to get access from retirement accounts. Hopefully this gets turned into an ETF or a mutual fund, but then the question would be how this differs from publicly traded securities.
Even then... how much of your investment money would you want to put into an asset class that doesn't have a decades of history. When things go south will you have the fortitude to stay the course or will you realize your losses and pull out because you don't know what to expect?
As much as I find the idea of crowd funding an interesting, potentially innovative idea that should likely be allowed, I cannot see a situation where it doesn't end up creating literally the exact same scenario as unregulated penny-stocks.
A huge slough of shit companies who can't get funding from respectable investors and then proceed to aggressively pursue the average joe with 10k in the bank to invest a few grand "in the next big thing!"
Someone please tell me how I'm wrong.
The main companies who stand to really benefit from this are those that cannot raise cash from tradition institutional investor. And companies that cannot raise money from tradition institutional investor don't have the best track record.
This is a good BATNA for even the best startups, so it's going to drive up valuations across the board.
Two main reasons:
1. Control: Traditional investors want power. Board seats. Founders like Zuck who want to retain control would be able to do it if they funded via the crowd. Right now he has (rare) voting control but if he had funded via the crowd he could have had 100% control. Every single board seat.
2. Leverage: If they wanted VC money for their advice and connections etc -- but they didn't want to give up the aforementioned control, they could use crowdfunding (or the threat of crowdfunding) as leverage. This leverage could also be applied to deal terms like amount raised, valuation etc. Competition is great for negotiations.
Equity crowdfunding for the general public should be a good idea, but unfortunately I'm afraid it's not. The asshole to elbow ratio is just too low. I'm deeply concerned that the entire seed stage market is about to get shat upon rather copiously. The frauds will actually drown out the good deals, since they'll almost by definition be better at flash and promotion.
A lot of people are really naive about this stuff. Organized crime will likely get involved. It will not be pretty. But hey, those companies that make flashy startup intro videos are about to do a lot of business.
Just as there are sure to be well publicized stories about people getting fleeced -- there will be stories about other people getting rich.
Yes, there will be scams. And there will be successes.
On the upside, the "good stuff" from the JOBS Act (Title III) should be implemented by the end of the year.
Users having ownership in a company can be a powerful thing, and I think we're going to see it more and more. Hopefully with the new SEC regulations companies like Reddit will be able to legally do what should be easy (gift people equity).
The upside is that the SEC reported to congress that they're going to get Title III (the part of the JOBS Act meant for startups and small businesses) implemented by October this year. I think that's going to be a much better fit for what you're looking for.
Except now that it's before they even IPO, isn't it even more risky?
Genuinely curious, I was only 13 in 2000, so I didn't exactly know what was going on.
There are a few things from the JOBS Act that protects against terrible things. People can't invest more than a certain amount in startups overall - your quota is based on your income or net worth and is either 5% or 10%, depending.
Additionally, these are long term investments - you can't easily flip investments and I think that'll play a big part in people's psychology. You can't buy a share of some hip photo startup (for example) and sell it to someone else in 6 months at a higher price. In many cases you're going to be holding your investments until the company exists. There are exceptions to this, but I think practically we won't see secondary markets for a long time.
Another thing (this is more specific to Title III - the crowdfunding part of the JOBS Act that we're still waiting on) is that companies have to publicly set a goal and meet it through a registered platform. So a shaky startup can't find 10 suckers to give them $1000, they have to set a real goal (e.g. $50k) and convince a crowd of people to give them money. It still will happen, but I think fraud will be much less common than well intentioned startup failure.
The best part (IMO) is that the economics of investing will be dramatically different, so people can invest $100. Startups are super risky, but with $5,000 you can invest in 50 businesses and spread the risk. Because they're startups many will fail, but it's less likely to get conned by 50 founders.
Actually...yes.
The criticism of 'noobs will get fleeced' I think is silly. This one however, is valid. This could lead to dumbMoney sending valuations of dumbCompanies through the roof, also sending valuations of the good companies higher -- leading to a pretty nasty bubble.
But this is going to make a bubble. IT will take a couple years to shake out, but I sure hope that as a result of this the change isn't reverted.
Yes, people will invest their money poorly, but nobody could do as bad as Social Security which in my grandfathers case, returned less than %3 fair value of his money (Eg: effectively a %97 loss[1]. Slot machines only produce a %98 loss!) And nobody has the option to avoid "investing" in social security.
[1] compared to putting the money in an index fund. At the time of calculation, the indexes had just crashed with the market, so the actual results %90 of the time would have been much more in favor of individuals.
Regardless of whether or not you agree with the effort, it's an important distinction in understanding social security.
I've seen mentions in this thread of it coming out by the end of the year. What are other peoples thoughts?
This would be absolutely killer for independent films, which are badly in need of a financial boost at the bottom end of the market, and which in many ways resemble a specialized startup. On the negative side, they don't have a recurring revenue model of the same sort as a traditional product or service. On the positive side, the business process/manufacturing path of a film is very well understood.
Right now, some films are successfully crowdfunded. It works very well for documentariesthat address a topic which already has a dedicated interest community, and some kinds of fictional projects eg Super Troupers 2 met its $2m funding target in something ridiculous like 48 hours. But crowdfunding is very heavily geared towards projects that have a pre-existing audience, sometimes through participation of a Famous Person. If you're trying to launch a film from scratch it's way harder, and it's harder again if you're not targeting a very specific demographic (which is why you see a disproportionate number of LGBT films on crowdfunding sites - it's a demographic that is underserved by Hollywood and one that's easy to connect with from a marketing standpoint). Paradoxically, the less money you are looking for, the more difficult it can be.
Small indie films already go down the regulation D route - pre-filing with the SEC, and then raising production/marketing costs through a combination of presales to distributors and by offering a limited number of equity blocks to accredited investors. But this is very very time-consuming. There are things like tax incentives to help, but they require a lot of administrative overhead and are more targeted at mid-sized projects from established producers, eg California tax incentives require a minimum budget of $1 million, presumably so to make the state's administrative overhead worthwhile.
It would be a huge change for indie films to be able to do general solicitation for sub-$1m budgets, and offset the lack of brand identity by offering investment participation instead, notwithstanding the high risks involved. Unfortunately, it looks like there won't be any movement on this before October of this year, meaining the earliest that Title III crowdfunding will take off is in 2016, nearly 3 years after the final implementation deadline set out in the 2012 legislation. I don't know if this is the fault of the SEC itself or if the agency is too underfunded to go any faster, but it's quite frustrating for those of us who'd like to raise capital int he micro-equity space.
https://fundwisdom.com/article/brian-thopsey/title-iii-equit...